Senate panel launches inquiry in Bitcoin, other virtual currencies

Bitcoin and other virtual currencies are getting hit from all sides by U.S. regulators. The Senate Committee on Homeland Security is the newest group to look into the practices of upstart virtual currencies.

The committee sent inquiry letters to all major financial regulators and law enforcement agencies on Monday, according to The New York Times. The letters asked the regulators and agencies about the "threats and risks related to virtual currency."

One of the people involved in the committee's investigation told The New York Times, "This is something that is clearly not going away and it demands a whole government response."

Digital currencies aren't regulated, which is what worries government regulators. The virtual money can be manipulated or used to launder other types of money. Also, an all-digital currency allows people to evade various countries' currency controls with ease. It also, in at least some ways, is far more anonymous than moving cash through the legacy banking system.

This isn't the first time that federal regulators have taken up issue with virtual currencies. In March, FinCEN, which is the U.S. Department of Treasury's law enforcement branch, slapped Bitcoin exchanges with a hefty set of regulations borrowed from the banking world. And then, in May, a Homeland Security police unit that investigates money-laundering crimes obtained a court order that cut off Dwolla payments to Mt. Gox, a Japan-based company that operates the largest Bitcoin exchange.

The news of the Senate inquiry comes on the heels of New York state regulators also seeking more information on virtual currencies. On Monday, the state's Department of Financial Services issued subpoenas to a handful of people and companies that have been associated with virtual currencies, including venture capitalist Marc Andreessen, Cameron and Tyler Winklevoss, Coinbase, BitInstant, Coinsetter, and others. It also issued a memo that outlined possible new regulatory guidelines specifically for virtual currencies.

The Senate committee on Homeland Security has been investigating virtual currencies for the last few months, according to The New York Times. And, like the other regulatory bodies, it appears that it too may be considering creating new guidelines for Bitcoin and other virtual currencies.

"The federal government must make sure that potential threats and risks are dealt with swiftly," the Senate letter said, according to The New York Times.